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Table of Contents

What is the process of Postal Banking Works

Postal Banking and the Unbanked

Current Situation of Postal Banking Proposals

Frequently Asked Questions

The Bottom Line

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What is postal banking?

Financial services that are available at the post offices could aid many Americans

By Kat Tretina

Updated April 28 2022

Reviewed by JeFreda R. Brown

Facts checked by Skylar Clarine

In postal banking, your local post office provides some basic financial services, similar to a commercial bank. Postal banking is widespread in much of the world and was once available in the United States. Some advocates are now suggesting that the return of this service could be a low-cost solution for the country’s large non-banked population.

Important Takeaways

Postal banking is commonplace in other countries but hasn’t been seen in the United States for decades.

Many believe that bringing it back could help make banking services at a low cost available to low-income Americans.

Around 7.1 millions American households do not have checking or savings accounts.1

High fees and account minimums often prevent people from opening accounts.

Customers who aren’t banked depend on merchants to get basic financial services, such as bill payment or check cashing and can be expensive.

How Postal Banking Works

With postal banking, the post office in your area functions as a bank branch. It could, for instance, provide cash for checks, bill payment processing, as well as small loans.

Today, U.S. post offices do not typically provide the services mentioned above, but they do offer postal money orders as which is a convenient option for people who must pay off a debt or to transfer money securely to someone but who don’t have a checking account. The recipients can also cash their money orders at any post office.

Post offices of the past were not as restricted. From 1911 through 1967 in the U.S. had a Postal Savings System, where Americans could put their money into savings accounts that were backed by the government and earn interest. However, as commercial banks increased their interest rates on savings accounts, demand to use the Postal Savings System declined, and the program ended in 1967.2

Postal Banking and the Unbanked

The U.S. in 2019, the most recent year in which data were available in 2019, more than five percent of households (about 7.1 million in all) were not banked, which means that no one in the household has a checking or savings account at a bank or credit union.1 For those who live in these households, banking services such as the ability to cash the check could be prohibitively expensive.

According to a survey conducted in 2019 by the Federal Deposit Insurance Corp. (FDIC) the majority of households without a bank account are poor and do not have access to a credit or bank union for reasons that include:

Account minimums are too high. The most often cited reason is that the household did not have enough funds to satisfy banks’ minimum balance requirements.

Lack of trust. A lot of people have said that they don’t trust banks with their money.

Fees. Unpredictable (and often excessive) fees—such as overdraft fees or monthly account charges and withdrawal fees—block some individuals from opening or keeping accounts.3

With no access to a check or savings accounts, households that are not banked use services such as check-cashing stores as well as payday loan centers to conduct financial transactions like cashing paychecks and paying utility bills. Check-cashing stores in California for instance fees can range from 1.79% to 14.99 percent of the face amount, depending on the nature of the check.4

Postal banking advocates say that the postal banking system will not just allow people with low incomes to cash checks at less costs, but also keep them away from predatory lenders. The ability to visit the post office to get small loans could end their reliance on high-cost alternatives, such as payday lenders.5

Current Situation of Postal Banking Proposals

In 2014, the postal banking industry was a hot topic because of the release of a white paper by the U.S. Postal Service Office of Inspector General. The paper noted that unserved households spend more than $2400 per year for interest and fees from other financial sources and that postal banking could reduce that dramatically.6

The white paper sparked fresh discussions on options for underserved Americans. In 2020 the senator. Kirsten Gillibrand (D-N.Y.) introduced a bill — the Postal Banking Act—that would allow for the Postal Service to provide basic financial services. The bill was co-sponsored by Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).7

In October 2021, the Postal Service, in partnership with the American Postal Workers Union, began a pilot of a small post-banking program for four towns. A few post offices will offer services such as cash-checking bills, bill payments, along with ATM withdrawals.

It is known that the Postal Banking Act and the postal banking pilot program have met with massive resistance from the Republican the leadership of Congress and the banking industry. In a statement, the American Bankers Association (ABA) issued a statement saying, «The American Bankers Association has long been a vocal opponent of postal banking, and has previously commented that it may be perceived as a government-endorsed bank that competes with tax-paying banks, and could pose risk that USPS is ill-suited to manage.»

The ABA maintains that, rather as it being the Postal Service, the answer to the problem of people who aren’t banked should be found in its own branches. «It’s easier than ever to open a bank account within this country, with Bank On-certified accounts that are now accessible in over 50% of U.S. bank branches, and feature low costs, no overdraft fees as well as robust transaction options like a debit card or prepaid credit card, and bill pay online,» the ABA says.8

What is postal banking?

Postal banking refers to providing basic banking services to Post offices in the area. That might include things like cashing check as well as bill payment as well as small loans.

What are the benefits of banking by post?

Advocates say that postal banking may make financial services available to the millions of Americans who are not currently banking and offer them a lower-cost alternative to costly check-cashing shops as well as payday loan providers.

What’s the reason to oppose postal banking?

It is believed that the U.S. private banking industry believes it is that the U.S. Postal Service is ill-equipped to include banking in its other services , and that many banks are now offering low-cost services that can better serve those who are currently not banked.

The Bottom Line

Postal banking is becoming increasingly mentioned as a possible solution for people with low incomes who don’t have access to traditional banks or credit unions. While postal banking has seen some progress in Congress in recent years, it still has a lot of opposition from the banking industry. If postal banking does not become widespread and widely accepted, the majority of people will continue to rely on banks and credit unions (or check-cashing shops and payday loan purveyors) for banking services.

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